Utility Profits Linked to Gender Diversity

Wake up utilities. If you want to make more money and succeed during the disruptive transformation taking place before your eyes, you’ll need different thinking at the top, and that means putting more women in leadership roles.

New Hampshire, USA --
If utilities want to succeed during these transformative times, they will need to promote more women to board positions. That is the message offered in new report released last week by EY.

The report, Talent at the Table: Index of Women in P&U, explains that women make up just a small percentage of board-level positions in utilities and links that to the underperformance that those same utilities are experiencing.

EY’s Global Power and Utilities Leader, Alison Kay, who authored the report, said that she was curious to see “what proportion of females were actively engaged at the top of these organizations that are facing the transformation of the sector.” After surveying the top 100 global utilities by revenue, she found that women make up just 4 percent of board members, a result that she found disappointing although not surprising, she said.

The report, however, goes one step beyond simply pointing out inequities in the utility boardroom, it links diversity to financial performance and shows without a doubt that gender diversity matters. “If you look at the evidence, in this industry the most diverse companies have a return on equity of 7.7 percent verses those with the least diverse boards who have a return on equity of 4.5 percent,” she said. “So again financially there is lots of evidence that diversity matters.”

The utility sector is already under mounting financial pressure with the sector underperforming compared to the rest of the world. “If you look at the performance of utilities over the past five years, [the sector has] underperformed the global equity markets by on average two-thirds,” said Kay. No doubt that this underperformance is due to the enormous challenges that the utilities are facing today. Whereas the utility business model used to be quite simple and centralized, today utilities face a multitude of problems including:

Managing distributed energy resources;

Consumers demanding control of their own energy use;

Meeting clean energy targets and carbon regulations;

Digitization of big data;

Competition from commercial organizations that want to be their own power plants;

An aging workforce.

These challenges demand new thinking and innovative approaches in order to find solutions to them, something that Kay said won’t happen unless more diversity is brought to the boardroom.

“The financial performance is the bell weather for the changes that the industry is facing,” said Kay. She said that the industry is well aware that it needs to change. “There is no question in my mind that the financial performance over the past five years is saying very loud and clear status quo is not an option,” she stated.

Why Diversity?

With such great challenges in front of it, how can a utility be sure that diversifying its board will help lead it to a profitable future? The report points to multiple studies that have shown why women are good at effecting change. “When you are trying to grapple with very complex problems, having that diversity of thinking, diversity of experience, diversity of innovation is critical,” said Kay.

According to the report, women are often “more willing than men to ask questions and challenge the status quo. In many cases, they also bring good interpersonal skills and a more collaborative, inclusive approach.” In addition, the report said that “in a study of 101 large corporations, companies with three or more women in senior management functions scored higher than companies with no women at the top on nine criteria of organizational excellent including key factors such as leadership, accountability and innovation.”

What Can Be Done?

Kay said that she hopes the report will begin the debate about the need for change — both industry-wide and in the boardroom. EY plans to continue its index year after year. “I’d like to go back in 5-10 years time and see a real change in the percent of females represented in the industry — at all levels of the organization,” she said.

The Talent at the Table report considers the world’s top 100 global power and utility companies and ranks them according to the gender diversity of their boards and senior management teams. There are also six high-achieving women interviewed in the report.

“The financial aspects throughout the report really create the case that diversity as enabling businesses to prepare and anticipate change. You know there is a direct link both in financial terms but more broadly between diversity and improved performance,” said Kay.

Government policy can also help achieve diversity at the board-level. The report also reviews the top 10 countries for women on boards across all industries [see chart here] and finds that the EMEA [Europe, Middle East, and Africa] region performs best in terms of boardroom diversity, accounting for 9 of the countries in the top 20. North America follows with six and the Asia-Pacific region with five.

Kay said that “the relatively strong showing of EMEA companies in the Women in P&U Index demonstrates the power of legislation to influence action.”

With or without legislation mandating it, the EY report clearly shows the importance of gender diversity in the face of the challenges. For the power and utility sector, this can’t be underestimated. The call to action is diversity is something the power and utility sector needs to start managing more actively.

Alison Kay's advice to utilities? “Look and see where you stand and think about how you might change that.”

8 Comments

So many generalizations. I think you are mistaking a very small "club" of men who trade places in utilities to each others' benefit. 99.99% of "men" NEVER see this small club and yet they are lumped in with the beneficiaries as if they were all to blame--absurd.
More women need to focus on the power industry and finance--it is why men are the dominant force--numbers. Get off your chaise and get into the power generation field and then the industry will see diversity.

ANONYMOUS
June 19, 2014

I am actually surprised at how low the number of top level executives female there in the energy sector. With the amount of change continuously occurring within the industry, we need more diversity at the top; with it comes new questions, concerns, and ideas.

Diversity matters and makes a difference. To the E&Y report we can add 3 more that make the numbers and performance case for recruiting, retaining and promoting more women to the C-suite and board room:
1. Catalyst. (2011). The Bottom Line: Corporate Performance and Women’s Representation on Boards (2004-2008).
2. McKinsey. (2010). Women Matter 2010 – Women at the Top of Corporations: Making it Happen.
3. Credit Suisse Research Institute (2012). Gender Diversity and Corporate Performance.

Notwithstanding that no scale is provided for the scores, that is, a range, we're now supposed to factor a person's genitalia factor into a corporation's financial performance? I thought it was one's experience, intelligence and past track record.

It sounds to me like the author of this article suffers from the same kind of arrogance as Justice Sonia Sotomayor as typified by the latter's "wise Latina" comment when she was nominated to the SCOTUS.